ECB’s Interest Rate Move ‘Strange’

The European Central Bank (ECB) may ”˜struggle to justify’ its plans to hold interest rates until 2019.

Antony Barton, one of our IFAs, believes “This is more dovish than we or the market expected. 

“While clarity on the end of quantitative easing programme will end speculation that a further extension was possible, keeping interest rates in this negative territory for at least another year seems strange,” continued Antony.

“We struggle to see justification for such policy, other than competitive devaluation of the Euro.”

The announcement came on Thursday as the European Central bank stated that it plans to extend its QE from September to December 2018 only.

Purchases made during this period are expected to be reduced from €30 billion to €15 billion per month, after which the ECB then expect the quantitative easing programme to end.

Along with this change, the ECB has also updated its guidance on interest rates. The new guidance states that these rates, which are currently set by the ECB at -0.40%, will remain at the current levels until at least the summer of 2019.

In a press conference, the ECB president Mario Draghi announced the changes and gave a reasonably upbeat assessment of the economy. “While the ECB’s forecast of GDP growth has been lowered for 2018, it remains “solid” and the forecast, on inflation, has raised substantially for 2018 to 2019 to account for higher energy price inflation.”

Immediately after the announcement was made, the Euro fell by over 1% against the US dollar. However, investment markets responded positively to the announcement, with the pan-European Stoxx 600 index rising 1.4% on the day. In the UK the FTSE 100 ended the day’s trading sessions 0.81% higher.


    More stories

    08 May 2018

    Expect Interest Rates Rise In November

    Read more

    26 Apr 2018

    Investors Should Hold Their Nerve

    Read more